What distinguishes a real liability from potential liability?

A real liability is characterized as a confirmed liability, meaning it represents a present obligation that a company has to pay a particular amount or fulfill a specific duty in the future. This obligation is typically measurable and arises from past transactions or events, such as borrowing money or purchasing goods on credit.

In contrast, potential liabilities are not guaranteed; they may arise from uncertain future events, such as pending lawsuits or warranties on products sold. These potential liabilities may never materialize, and therefore, they are not recognized on the balance sheet until the obligation becomes probable and measurable.

Understanding this distinction is crucial for accurate financial reporting and assessment of a company's financial health. By recognizing liabilities correctly, stakeholders can have a clearer picture of the company's actual obligations versus mere possibilities.